Squared Away Blog

Americans build wealth as they age, and this pattern of accumulation has been similar over three decades of U.S. Survey of Consumer Finances data collected by the Federal Reserve. In the chart below, net wealth is expressed in terms of annual incomes for ages 20 through 64; for example, someone with $150,000 in wealth and $50,000 in income has a wealth-to-income ratio of 3. Net wealth equals financial assets such as 401(k)s and housing, minus debt and mortgages; income includes employment earnings and investment gains.  This measure does not include Social Security or defined benefit (DB) pensions. The stability of this wealth-to-income ratio over 30 years may, at first glance, be comforting.  But it shouldn’t be – wealth should hav…

Anger, frustration, confusion, and regret – high emotion permeates the nearly 8,500 complaints about student loans posted last year on the Consumer Financial Protection Bureau (CFPB) website. A college education can pay dividends in the form of higher lifetime earnings and more opportunities, and millions of graduates repay their loans without incident. But many of the one in three borrowers facing extreme difficulty with repayment have legitimate reasons. The job market, while improving, is not robust for recent graduates. And interest rates on student loans are higher than mortgage rates, so the amount of debt accumulated – and the monthly payments – can be substantial. Borrowers report that lenders and the firms hired by lenders to service customers are often unwilling to renegotiat…

With snowstorms hammering the eastern United States, some baby boomers may be looking for a permanent escape when they retire. Yet Southern cities did not come out on top in the Milken Institute’s new ranking of the Best Cities for Successful Aging, a ranking based on a fairly comprehensive set of factors important to seniors. Take frigid Iowa City, the No. 1 small city: it gets credit for its transportation and the affordability of its assisted living and adult day care services. Milken Institute economist Anusuya Chatterjee saw common themes among the top-ranked metro areas.   They tended to have vibrant economies, quality healthcare services, opportunities for intellectual stimulation and active lifestyles, and easy access to amenities like grocery stores, transit,…

In a divorce, splitting up the pension is trickier than dividing the house. Divorcing couples and their advisers “who aren’t hip to divorce splitting of retirement plan assets often do it improperly,” said Howard Phillips, a Delray Beach, Florida, actuary and author of “Dividing Retirement Plan Assets in a Divorce.”  He knows, because he values pensions for couples negotiating their divorce settlements and then drafts the order that will be entered into the court. Dividing a house is easy.  Two realtors pouring over sales of comparable nearby properties can readily agree on a value – once the house is sold, the parties pay the realtor and split the proceeds.  But a pension plan’s value greatly depends on how and when…

Manuel Carvallo immigrated from Mexico at age 40 and became a U.S. citizen at 51.  The Georgia pension consultant just reached another milestone, accumulating the 10 years of U.S. work experience required to receive a small Social Security pension when he retires. Millions of immigrants from around the world who work here illegally could get the same opportunity as Carvallo under President Obama’s executive actions on immigration, which propose to give many of them temporary legal work papers and Social Security numbers.  Great uncertainty remains about where U.S. immigration policy is heading as Congress actively seeks to reverse the president’s administrative actions What is clear is that when undocumented immigrants – farm workers, hotel workers, and household and restaurant staff…

Lose your SSA-1099 tax form showing your total Social Security benefits in 2014? Or perhaps you moved and never received it in the mail. Last year, more than 156,000 retirees did just that and had to call the U.S. Social Security Administration for a replacement. But help has arrived. For the first time, retirees can go to the agency’s website to retrieve and print out a duplicate SSA-1099 form. The SSA-1099, which is mailed in January, provides benefit information necessary for filing an individual’s income taxes. The SSA-1042S, a similar form for immigrants and other non-residents, is also available online. ……

Mutual fund managers would seem to possess myriad advantages over the average individual investor: a business degree, a deep understanding of corporate finance, and years of experience. But you wouldn’t know it based on how their personal portfolios fare. A new study of mutual fund managers in Sweden found that that they “do not exhibit superior security-picking ability” when managing their personal portfolios, compared with similarly situated private citizens who also invest for themselves. Using detailed tax and investment information contained in Swedish government data bases, researchers from the University of Notre Dame and Michigan State University were able to link individual fund managers to their personal equity portfolios and returns, which were then compared with the returns of non-experts…

Excluding the health insurance premiums paid by employers and employees from workers’ taxable earnings is the federal government’s largest single tax expenditure, amounting to some $250 billion a year in lost revenue. Eliminating the exclusions – as some in Washington have proposed – would sharply increase how much is taken out of workers’ paychecks for payroll taxes and for income taxes. But any such proposal would also put more money in their pockets when they retire by increasing the earnings base on which their Social Security benefits are calculated. Urban Institute researchers Karen Smith and Eric Toder recently estimated the policy’s impact on workers’ taxes and benefits and found that it varied widely for different income groups and among peo…

U.S. workers have a long list of reasons, many of them legitimate, for why they can’t come up with the money for a retirement savings plan. But here’s the rub: we live in a 401(k) world. Workers who aren’t convinced of the urgency of saving should listen to people who have already retired.  Even though many current retirees have defined-benefit pensions, they have become largely unavailable to most people still working today. And these retirees say they’ve learned the hard way that saving is key. Excuses now and regrets later – these two takeaways came out of a nationally representative survey of workers and retirees by HSBC, a global financial institution. Saving for retirement is not a major priority for…

Education is the holy grail of success.  But too many young men in this country don’t graduate high school, much less aspire to a college degree. It’s clear that completing high school improves one’s chances of moving up the economic ladder.  So why doesn’t this incentive always work? At a time of greater attention to the nation’s widening inequality, new research supports the argument that income inequality may actually discourage disadvantaged low-income teenagers from finishing high school. The study examined whether there is a relationship between inequality and the drop-out rate, measuring inequality as the ratio of the lowest incomes in each state – the bottom 10 percent – to incomes in the middle.  The study found that drop-out rates…

Saving should be the centerpiece of any retirement plan today.  But a new survey indicates that many Americans on the cusp of retiring have given little thought to the other key issues they’ll face in retirement. A majority of older Americans recently surveyed by the American College of Financial Services, an educational organization for financial professionals, said they have set a goal for how much money to save to “live comfortably” as retirees.  And, when asked to assess their own progress, they feel they’re doing a good job of it.  Granted, the survey was limited to a select group of about 1,000 people over age 60, all of whom have at least $100,000 in investable assets. But the financial risks…

Ever try to make sense of a medical bill, with its co-payments, cost-sharing, and government or insurance-company reimbursements that haven’t been paid yet?  Hospital stays with multiple doctors and lab tests make billing even messier. These layers of complexity contribute to errors and confusion that can damage Americans’ credit ratings.  Consumers “incur medical debts in collection without certainty about what they owe, to whom, when, or for what,” the federal Consumer Financial Protection Bureau (CFPB) reports. When a hospital or physician hasn’t been paid, they may, after trying to resolve the issue in-house, pass the unpaid bill to one or a series of collection agencies.  Yet nearly one in four of the complaints consumers have made to CFPB about medica…